China's corn market sees little impact from subsidies to feed millers

Reaction by the Chinese corn market to an official announcement of a subsidy for feed millers in Jilin province on China's State Administration of Grain website has been lukewarm so far, according to market sources last Friday.

The announcement, made on February 10, did not give further details about how much the subsidy was in monetary or percentage terms or when it would begin.

Market sources and local media said the announcement was in response to Beijing's directive in January to the four major corn-producing regions of Heilongjiang, Jilin, Liaoning and Inner Mongolia, to offer subsidies to livestock feed millers.

However, market sources told S&P Global Platts they received the government document on subsidies to feed millers in all four regions, even before the official announcement was made. This additional policy is seen as China's latest move to boost demand for its new corn crop.

Feed millers are major consumers of corn, soybean meal and dried distiller grains in China, accounting for more than half of the country's total corn consumption of around 197.6 million mt in the crop year of 2016-2017 (September 1, 2016-August 31, 2017), according to China's National Grain and Oils Information Center.

However, China-based traders do not think that the subsidies will have a substantial impact upon current corn demand since the bulk of feed millers in China are located in the south, while the subsidies are aimed at a much smaller number of feed millers who are located in the north.

Even though the feed milling industry takes in a total 100 million mt of corn annually, plants in the four corn-producing regions consume just around 13 million mt/year, said market sources.

Adding to this, the feed miller subsidies are financed from funds left over from the reserve created for corn processing companies in the same region, which means the subsidy amount is rather limited, said a Chinese trader.

Local media reports also said that only those feed millers that produce more than 50,000 mt in 2015 are qualified to apply for the subsidies.

This limits the number of companies that will receive the subsidy since less than half of the millers in the impacted regions are qualified, said Dai Xiaojing, an analyst at China Corn Network.

Another problem is that the subsidies are only valid till end-April, leaving little time to implement them, she added.

The only impact from the subsidies may be that some northern feed millers may buy corn two to three months earlier and increase the amount that they store privately, to take advantage of the window during which the subsidy is applicable, which would decrease official inventories by around 3 million mt, said a Chinese corn trader.

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